British stocks surge on Conservatives' stunning election win

* Blue-chip FTSE 100 index up 2.2 percent

* Utilities, banks, housebuilders rally after election results

* Domestically-focused FTSE mid-cap index sets record high

By Atul Prakash and Sudip Kar-Gupta

LONDON, May 8 (Reuters) - Britain's stock market surged higher on Friday after Prime Minister David Cameron's Conservatives unexpectedly won the general election, giving the party another five years in power.

The blue-chip FTSE 100 index rose 2.2 percent to 7,038.96 points by 1344 GMT, within touching distance of the record high of 7,122.74 points reached last month. It headed for its biggest one-day percentage gain since early January.

The FTSE 250 mid-cap index rose 2.7 percent to set an all-time high as the election results came through and the Conservatives secured an overall majority, overturning poll predictions of a hung parliament.

Many investors had backed the Conservatives over the opposition, centre-left Labour Party which had promised tough regulation of industries such as banking, utilities, real estate and gambling which could have hit the profits of companies in those sectors.

"We are seeing a relief rally in some domestically focused names, with utilities, real estate, transport and banks having a pretty good day," Robert Parkes, director of equity strategy at HSBC Bank said.

"But the political uncertainty isn't going to go away. We have now got a referendum of Britain's EU membership on the horizon."

The FTSE 100 Volatility Index fell 21.8 percent to 12.98, the lowest since July. Trading volumes on the FTSE 100 were 128 percent of its 90-day daily average by late afternoon trading, against 82 percent for the pan-European FTSEurofirst 300 index.

Below were the big sectoral movers of the day:

* UTILITIES - The FTSE 350 Utilities index rose 4.4 percent, the biggest one-day percentage gain in six years, on the prospect of less regulation in the sector. The Labour party wanted to give the energy regulator the power to force firms to cut prices in response to falls in wholesale costs.

* Utilities Centrica, SSE (LSE: SSE.L - news) , Severn Trent (Other OTC: STRNY - news) and National Grid (LSE: NG.L - news) gained 3.2 to 6.8 percent.

* BANKS - British banks up 3.1 pct as elections results removed fears of a break-up of the biggest banks and further hikes in a tax on banks' assets. Lloyds, RBS (LSE: RBS.L - news) and Barclays (LSE: BARC.L - news) were up 4.5 to 6.4 percent.

* REAL ESTATE - Property stocks were up in a relief rally as Labour's "mansion tax" proposals and "use it or lose it" policy for developers who own land that could be used for homes had unnerved investors. On the other hand, the Conservative Party plans to expand a "Right to Buy" programme to allow people living in social housing to purchase their homes at a discount.

* Housebuilder Berkeley Group, Estate agents Savills (LSE: SVS.L - news) , Country Countrywide, Foxtons and online property search company Zoopla climbed 4.8 to 11.8 percent.

* BETTING FIRMS - Ladbrokes (LSE: LAD.L - news) surged nearly 10 percent, while William Hill (Other OTC: WIMHY - news) , Betfair and Bwin.Party rose 3.1 to 5.3 percent on relief that the opposition party, which wanted a new levy on online betting, lost the election.

* ZERO-HOUR CONTRACTS - Sports Direct rose 4.6 percent. It is a large user of zero hours contracts, and was seen as being under threat in the event of a Labour-led government.

* BUS COMPANIES - Stagecoach, Go-Ahead, National Express (LSE: NEX.L - news) and FirstGroup (LSE: FGP.L - news) advanced 3.0 to 6.3 pct after the election results. The Labour party had planned a regulated service, with local government setting fares and routes. (Reporting by Atul Prakash; Editing by Dominic Evans)